Core ideas

On December 17, the company announced that it intends to acquire 10% of the shares of the company's holding subsidiary C&D Real Estate Group Co., Ltd. held by Xiamen C&D Group Co., Ltd., the controlling shareholder of the company, with a corresponding valuation value of 3.066 billion yuan. C&D Real Estate has performed well in recent years. The net profit margin returned to mother reached 3.2% in 2023, which is higher than C&D's net profit margin of 1.7% in the same period. The 10% equity acquisition corresponds to a net profit of 0.45 billion yuan, which is expected to increase the company's net profit to mother by more than 10% in 2024. Furthermore, the company plans to implement profit distribution in 2024 and 2025, with a cash dividend ratio of not less than 30%, and a dividend of not less than 0.7 yuan per share. Corresponding to the current dividend rate of 6.9%, it shows that the company attaches great importance to investor returns.

occurrences

On December 17, the company announced that it intends to acquire 10% of the shares of the company's holding subsidiary C&D Real Estate Group Co., Ltd. held by Xiamen C&D Group Co., Ltd., the controlling shareholder of the company, with an assessed value of 3.066 billion yuan. The shareholding ratio will increase to 64.654% after the transaction is completed; it is planned that when implementing profit distribution in 2024-2025, the cash dividend ratio will not be less than 30%, and the dividend per share will not be less than 0.7 yuan.

Brief review

The acquisition of high-quality assets is expected to boost the company's 2024 performance by more than 10%. C&D Real Estate has performed well in recent years. From 2020 to 2023, C&D Real Estate achieved net profit of 4.2 billion yuan, 4.3 billion yuan, 4.4 billion yuan, and 4.5 billion yuan respectively. Despite the overall downturn in the real estate market in recent years, steady performance has been achieved. The net profit margin to mother reached 3.2% in 2023, which is higher than C&D's net profit margin of 1.7% in the same period.

Based on the results of the acquisition target in 2023, the net profit corresponding to the 10% shares acquired is 0.45 billion yuan, which is expected to increase the company's net profit to mother by more than 10% in 2024. Therefore, for C&D Co., Ltd., this transaction will further strengthen its real estate business, enhance the company's profitability, and promote the steady operation of the “supply chain operation+real estate” dual business pattern.

The dividend plan is full of sincerity, and the current dividend rate is close to 7%. The company plans to implement profit distribution in 2024 and 2025, with a cash dividend ratio of not less than 30% and a dividend of not less than 0.7 yuan per share. Looking at the company's latest closing price, the cash dividend is 0.7 yuan per share, and the corresponding dividend rate is as high as 6.9%, which is far higher than the current 2.6% dividend rate in the real estate sector (CITIC Level 1 Classification). It shows that the company attaches great importance to investor returns.

High-energy cities have a strong momentum of “stopping falling and stabilizing”, and the company is expected to fully benefit. According to statistics from local housing administrations, new housing sales in 40 cities in November totaled 13.26 million square meters, an increase of 27.8% over the same period in 2023. Among them, first-tier, second-tier, third-tier and fourth-tier growth rates were +50%/+19%/+27%, respectively. The recovery trend in core cities further strengthened in December. In the first half of 2024, the company's first-tier and second-tier cities accounted for nearly 80% of sales, and acquired 17 plots of land, with a land acquisition amount of 44.3 billion yuan, of which Tier 1 and Tier 2 cities accounted for 98%. We believe that under the strong momentum of “stopping falling and stabilizing” in high-energy cities, the company is expected to fully benefit.

Increase profit forecasts and target prices. We forecast the company's 2024-2026 EPS to be 1.38/1.73/2.16 (the original forecast was 1.38/1.69/2.15 yuan). The company's real estate business is located in high-energy cities, and land acquisition remains strong. The company is expected to fully benefit from the recovery of core cities and maintain purchase ratings. Referring to the average PE valuation of comparable companies in 2024, considering that the company's acquisition of high-quality assets will effectively enhance performance, we gave the company the same valuation level and raised the target price to 13.80 yuan (originally 9.21 yuan).

Risk warning: 1) The business model of the company's supply chain operation business model is to charge a fixed fee based on product turnover and according to a certain percentage. Since 2022, commodity prices have declined, and the company's revenue scale and profitability may be impacted. The company is actively expanding the supply chain business categories and regions, but new categories and regions need to be cultivated, and the process is at risk. Furthermore, overseas business is an important component of the company's supply chain business. Currently, major overseas economies are facing recession, and the Russian-Ukrainian war has also brought geopolitical risks, all of which may have an impact on the company's business. 2) The company's real estate business segment is operated by two entities, C&D Real Estate and MediaTek Group. The MediaTek Group has a large inventory in third- and fourth-tier cities, which may drag down the company's sales. Furthermore, the current inflection point of real estate sales is present. Although C&D Real Estate is located in the core area of the core city and has achieved excellent sales results in the past, this does not represent the future.